Chapter 3: Planning with historical output rates

On Nov 27, 2008 I made my first trip to PT Honeywell Indonesia at Bintan.

Two years ago the Singapore manufacturing operations was moved to this manufacturing site to capitalize on the low labor cost in Indonesia. Essentially, the mode of operations, systems and procedures are inherited from the Singapore operations. In fact, the Singapore management team is fully intact and the Samuele team is managing the Bintan operations.

Samuel Siew, my boss walked me down the shop floor as part of the orientation program. He highlighted to me the urgency to drive for 5S and Kaizen activities in this factory.

Shortly after he left, I continue to study the factory operations and diagnose what is the most severe problem that critically strangles the productivity of this factory.

From my 23 years of experience in the implementation of lean production system, I always believe there is one single huge boulder (problem) that once it is removed, the productivity of the factory will leap more than 100%. This is akin to the Pareto principle: 20% of the issues contribute to 80% of the problems or effects. But in lean production, a single issue could contribute more than 80% of the problems.

Figure 3-1: A single issue contributes to more than 80% of the problem

Inventory is the root cause of all evils as Toyota Motor Corporation says. You will expose all the issues that the factory faces if you were to break up the large batch of inventory to very small lot size or perhaps, make WIP moves at one-piece flow. Solve these issues and your company’s productivity and quality will jump by leaps and bounds.

However, during my first visit to this factory I cannot recommend the inventory reducing approach. This method takes several months to finally drive down the inventory level to its ideal minimum. I must rule out this approach even though all other lean masters or sinsehs love doing so. In their mind, they must be saying, “This is the best way to justify my time.”

I know time is precious. Therefore, within one hour, I must size up what is the most critical issue that this factory is facing. The only way to carry out such a time-strap diagnosis is through observing the people and the physical setup of the entire factory.

I have already explained in chapter 1 that the factory is setup in Group-Technology cells and for reason that the production volume is less than 10 units a day for most of the production cells, this conditions is ideal for the implementation of a one-piece-flow system. However, in operational management, there is more than just achieving the ultimate ideal of one-piece-flow system. At the end of the day, it is productivity that matters.

I continue to make careful observations in order to gauge the productivity level of the employees. I noticed half the production cells were down. Employees were sitting or standing idyllically.

“More than half the production capacity is idled away? Is this a common scene everyday?” I thought to myself.

I walked to line #9 and stood beside Dwi, the final assembly operator. I watched her hand motions. This is micro- motion study. I noticed she worked at a pace that was about 60% what I think is the normal pace.

I looked into her eyes. I did not see that there is an urgency to work at a faster pace.

I walked over to line #1 and observed Rio, another final assembly operator. I observed that he too, worked at a pace of about 50% of what I think is the normal pace. Again, I saw in his eyes there is no urgency to work faster. Perhaps, an attitude of ‘take it easy’ fills the air.

I walked over to ask Rachmad, the facilitator for these two production lines, “Is this the normal pace the operators at line #1 and #9 carry out their daily work?”

Rachmad replied, “Yes, this is how they get things done. By the way, they always complete the day’s output requirement. I am very proud of them.”

I asked, “Rachmad, how do you know the production output required for the day?”

“Oh! The production planner, Rina produces a production plan base on the number of units of each model that we can produce in one shift,” replied Rachmad.

“She uses a set of numbers representing the units of each model that you can produce in an 8-hour shift? How did Rina get this number?” I asked a probing question.

Rachmad explained, “My operations manager, Tan Woon Kit compiled an Excel spreadsheet indicating the production capacity of all the production cells broke down by product type and individual model. We produce more than 100 models. The capacity for each line and product model is defined as the number of units per 8 hour shift. This is an impressive list. Without which Rina would not know the daily capacity of each line and the quantity of units of product to load for the week in the production schedule.”

“Thank you, Rachmad. That is all I need to know from you about the daily planned output number. I need to talk to Rina in order to find out more about the production planning process,” I thanked Rachmad.

But deep in my mind, how did those ‘number of units per 8-hour shift’ for the 100 plus models come about? I assumed they are obtained from historical output numbers. Perhaps, they are the highest number of output per shift from among data collected over several months. Let’s not debate on my assumption now.

Several days later, Benny, the assistant operations manager introduced Darul to me. He said, “Pak Darul is the facilitator for production line #12 and #13. I am pulling him out from the shop floor to assist you.”

“Thank you very much, Benny. It is very kind of you. Welcome Pak Darul. You can certainly make a big impact to my work,” I said.

“I leave Pak Darul to you. I have to go now. I have to prepare for my meeting in an hour’s time,” Benny said.

Immediately I replied, “No trouble, Pak Benny. Leave Pak Darul with me, I have to give him a quick orientation about what HOS is about.”

Immediately after Benny left, I asked Darul to pull the chair and be seated in front of my desk. I asked, “How much do you know about lean production?”

Darul replied, “I have done several projects using Value Stream Mapping (abbreviation, VSM) for line #12 and #13. I am familiar with this technique.”

I can see in his eyes he is very confident in the use of the VSM technique.

“Good. That is a core technique where everyone who had gone to the lean expert workshop must learn by heart and preferably, had put it into practice,” I explained, “But I came from the hard-knock school. Do you want to learn something differently from the VSM school of thought?”

“Hard-knock school? What is that?” asked Darul.

“Never mind the original of the term, ‘hard-knock’. It describes a process where one learns something by going through a trial-and-error approach. For every single mistake he made, he should feel the sharp pain akin to knocking his head onto a wall. That is painful. Do you think this is an interesting way for you to learn about lean production?” I asked.

“Do you mean I have to drop the VSM technique and do things blindly?” asked Darul.

I explained, “Preferably not. I have a project for you to work on immediately. But I do not have the luxury of time for you to collect all the necessary data required to create a VSM for the production planning process. Neither do I think you can really create a VSM for a pure thinking process such as how a production planner goes about making a production schedule.

For these two reasons I chose to lead you through the completion of this project as your mentor. Do you think you want to work on this project?”

“Of course, yes. I would like to learn from you. I heard that you had written a book on lean production. You are one of those few people in the world who are very knowledgeable in this subject and you must have many years of practical experience in the application of lean production system. It is my honor and it is also a golden opportunity for me to learn from you, a sinseh,” said Darul.

“Please do say that. I am nobody. Writing is my hobby. Let’s get down to work immediately. Please get Jeffry to join us now,” I said.

Off Darul went to look for Jeffry. Ten minutes later, both Darul and Jeffry came to my office. I asked both of them to be seated.

I said, “Jeffry and Darul, let’s assume that the production department is a big black box. You do not know anything about its operations and production processes. How do you plan for the production schedule?”

Jeffry replied, “I need to know its production capacity. For example, how many units of a product they can produce in a shift.”

“When this number is given to you, do you question the accuracy of this number, Jeffry?” I asked.

“I can’t. This number is given to me by the Operations manager. He knows his line capacity. I cannot over-load his line with more than the capacity given by him. Otherwise, he will scream at me if his people cannot complete the schedule on-time. It will be considered as a production miss. That reflects badly on him,” explained Jeffry.

“Let’s stick to his capacity numbers. I am not going to question if these numbers are accurate or not. By the way, I know these capacity numbers are not the true capacity. From the pace how the employees work and more than half the production lines are down everyday, I strongly believe his capacity numbers are grossly under-estimated,” I said.

“But in VSM, if we do not get the true and accurate numbers, all the subsequent computations will be wrong. Don’t you agree with me?” asked Darul.

I explained, “Good point. At this juncture, it is not easy for me to explain to you. Even if a lean expert were to carry out the data collection, I would still not believe in his numbers. Let’s drop this debate[1].

Let’s stick to the hard-knock school of doing things. Just use these (even though grossly inaccurate capacity) numbers to carry out the production planning. At the end of the day, I would want the operators to record down when they finished producing the day’s output requirement. If it is much earlier than the end of the shift, it means the capacity number used is too low. This is obvious, don’t you think so?

In the next production schedule, Jeffry will have to adjust the capacity number upwards. This process shall be repeated several times until the operators consistently finished the days’ output requirement at about the end of the shift. This is a typical trial-and-error method practiced and highly regarded by industrial engineers who had gone through the hard-knock school.”

Darul exclaimed, “No wonder you assumed the production operations is a big black box. You just pumped in the planned quantity to be produced by each production cell and at the end of the shift you compared the actual output versus the planned quantity.

If these two numbers are equal, you look out for the presence of excess time on hand among the operators.

If the actual output is less than the planned quantity, you assume the ‘recently adjusted’ capacity number is about right.”

I explained, “Precisely that, Darul. Even if a lean expert had obtained fairly accurate capacity numbers, he too, must use the Samuele method to confirm whether his numbers are correct or not. Now, do you understand why I am not bothered by the inaccuracy of the capacity number provided by Woon Kit?”

Both Darul and Jeffry nodded their heads in concurrence.

“Jeffry, can you convert the capacity numbers from ‘number of units per 8-hour shift’ into a unit of measure called, ‘hour per unit’? I want to know the number of hours (with an accuracy of up to 2 decimal places) required to produce one unit of the product. You can make use of the Excel spreadsheet given by Woon Kit, add a column or two and you shall be able to convert all the capacity numbers from units per shift into hours per unit.”

“No problem, Eric. It is a mere transformation of data. I can do that immediately,” replied Jeffry.

“Next, you create a spreadsheet with these four columns: models, planned units, hour per unit, planned hours. Underneath the column ‘models’, list down the product model numbers, one model per row.

When you decide to load in a quantity or number of units of a particular model to be produced for tomorrow, you type in this quantity under the corresponding column, ‘planned units’. The planned hour will automatically be computed as the product of this quantity multiplied by the ‘hour per unit’.

You continue to add the number of units for other models that you plan for this production line to produce in a shift. On the right-most ‘planned hour’ column, a few numbers will appear. At the bottom of the table, create a macro to automatically sum up all the figures shown in the ‘planned hours’ above. This number is the total planned hours for the shift.

If this number is less than 8 and assuming it is an 8-hour shift, you can load up more units for the day.

If the number is greater than 8, you can do two things. One, tell the facilitator to arrange for his operators to stay back for overtime. Two, you can reduce the quantity for one of the models in order to reduce the planned hours to exactly 8 planned hours. You may have to use a trial-and-error method.”

“Hey! Wait a minute,” Jeffry stopped me and asked, “To load up the number of units to be produced by each production line to 8 planned hours is easy. But why must it be planned hours? Can’t I continue to use planned number of units?

What you are asking me earlier was to convert the capacity into ‘hour per unit’ and make use of it as a multiplication factor to convert the planned units into planned hours. Am I right?”

“Good question. How many hours do each production line has per shift?” I asked Jeffry.

I explained, “Each production line has 8 hours per shift. Time is a universal unit of measure.

If you were to plan the loading of the production schedule in units of products, are they apple-to-apple? I mean, is time which is in hours comparable to the number of units of product to be produced?

To make things worse, the time taken to complete different products varies because their cycle time are not the same. For example, in line #3, the cycle time for some of the product ranges from one hour to 2 and ? hours.

To the production folks, number of units of product to be produced per shift is just an order from you. They do not know how you derived these numbers and on what basis. Perhaps, you may be using gut feelings or simply, chose to under-load the line; especially, when you have to load several different models to be produced in the same shift.”

Jeffry nodded his head and said, “You are dead right, Eric. I fully agree with you. Often I chose to under-load the line because it is really difficult to gauge how many units of a combination of several different models they can produce in the same day. I can’t make a good guess and therefore, I loaded less number of units than I think they could produce. This is because being conservative is always safer than over-loading the line and receiving the full wrath from the operations manager.”

I continued my explanation, “Now, after converting the planned number of units into planned hours, can you compare the planned hours with the available hours per shift? It is easy, right. Both are in the same unit of measure; that is, hours. It is apple-to-apple.

Frankly speaking, insisting the line capacity (which is actually the cycle time of a product or model) to be measured in hours per unit and using it to convert the planned units into planner hours is a magical formula that eliminates a buffer mentality in you. Do you agree with me?

When you intentionally load less number of units into the production schedule, you are creating a buffer for the production folks just in case you think they cannot complete the production schedule by the end of the shift.”

“Yes, this is buffer mentality; being conservative is definitely buffer mentality. This has always been what I thought is the best way to do my job. But before this discussion, nobody tells me it is not the right thing to do,” lamented Jeffry.

“Jeffry, you may not be able to size up how detrimental this buffer mentality adversely affects the productivity of the production folks. Why don’t we stop our discussion now and you go ahead to develop a production schedule for tomorrow’s production plan using the planned hour method which I have taught you just now,” I prodded Jeffry to go ahead to use the new production planning methodology.

“Okay, I get it done by 4:00pm today. When shall we meet again?” asked Jeffry.

“Let’s meet at 4:00pm today,” I concurred.

At 4:00pm we met. I asked, “Jeffry, do you find the new planning method useful?”

Jeffry replied, “Very useful. As I add in the number of units to be produced for each model, the sum total of planned hours keeps changing. I can see the number increases from an hour plus and gradually rising up to 8 hours per shift. This is immediate feedback to me. I know instantly whether my production plan is close to the line capacity or not. It is beautiful.”

“Can you make a quick assessment if you are loading up the production schedule with a much higher number of units of products?” I asked Jeffry.

Jeffry replied, “Of course, I can load in many more units. I had added many more units of products than usual and yet the planned hour is still less than 8 hours. When I reached 8 planned hours, I had more than doubled the usual number of units of products for each shift. Wow! This is simply lovely.

In the past, I must be the culprit behind the production folks’ low productivity.

I single-handedly fed the line with so much less production orders that I know now, they are starved of things to do. No wonder, I had been seeing the production operators idling most of the time, especially during the second half of the shift.

I thought they were idle because of the frequent shortage of parts. Now it is very clear to me, I have not been doing a good job. I had failed in my duty to make sure that the production folks are churning products for the full 8-hour shift.”

I explained, “No, Jeffry. Do not blame yourself. In fact, there are very few manufacturing companies in this world that use the planned hour methodology in production planning. Most of them use the same old method that you did yesterday. They plan with the number of units of products to be produced and do not bother to convert it into planned hours.

By the way, this technique is not taught in any lean production workshop. You cannot find it in any text book. Not even in any of the lean production books. Even in my book that I wrote about lean production system, I did not describe this technique. Why?

This is fundamental industrial engineering stuff. To an industrial engineer, everything must be measured in time. Time is the only universal unit of measure. I just extended the concept of universal time into the production planning process.”

“I got it. Though simple, if it is not done right, the effect could be disastrous,” said Jeffry.

I said, “Let’s not grief over what had happened in the past. May I ask you to use this planned hour methodology to re-compute the planned hours for last month. Use the actual planned quantity for the last month. When you convert them into planned hours, you will notice these numbers are very much smaller than 8.

I need you to do one more thing. On the row beneath the planned hours, you divide the planned hours by 8 and multiply the quotient by 100%. I called this, planned efficiency.

The planned efficiency should be 100% if you have maximized the production loading in the past one month’s production schedule. Of course, you will realize the planned efficiency for last month was very much lower than 100%.”

“Okay, I will do it. But I am going on leave for several weeks. Can I do it when I am back? ” replied Jeffry.

I nodded my head and sighed, “Well, you should enjoy your vacation. Let’s put this down until you come back from your annual leave. Meanwhile, I suppose Rina will take over your current duty.”

In early February 2008, Jeffry came to me and showed me this Figure. He said, “Eric, the planning efficiency was much worse than I could have ever imagined. For January, the average planned efficiency was only 27.7%. Even for the best day, the planned efficiency was only 51%.”

Figure 3-2: Planned efficiency under the old method

I took a long pause before I explained to Jeffry and Darul, “Multiply the average planned efficiency, 27.7% by 3 equals to 84%. The potential for improvement in the productivity is more than a factor of 2 times. To be exact, it is more than 260%. A mere adopting of a new production planning methodology contributes to more than 260% increased in productivity? Unbelievable!

Perhaps, the hour per unit could be wrong. An inaccurate number used will lead to this erroneous computation. The accuracy of the capacity number is a crucial factor that must be checked and validated.

But my 23 years of experiences tell me that the production or operations manager always choose an average number computed from its historical actual daily output. Mind you, the inaccuracy of the capacity number used for production planning is always to err on the lower side and not on the high side. Certainly he would like to err on the lower side to give his people more ‘buffer’ in the form of more time on hand to complete the production of a much lower number of output everyday.

Let’s not debate over the tendency to err. The average number itself is another buffer. Why do I say so?

What does an average number mean to you? Half the time the planned efficiency is above the average of 27.7% and half the time the planned efficiency is below the average of 27.7%. You get it?

In the above chart, the maximum number is 51%. In other words, even if the production planner had consistently planned for 51% (instead of 27.7%) everyday, the production folks would be able to complete the day’s planned output number without any problem.

Using the historical average actual output number is buffer mentality. Everyone loves the statistical average so much that no one ever suspected in itself, it is such a wonderful buffer.

If you analyzed the historical output numbers carefully, even for the highest actual output number, it is a confirmed achievable number. The production line actually did produce the quantity of output on that day. The line has the capacity to produce this quantity of products. You should not doubt its capacity.

Why not just use the maximum output achieved in the past instead of the average number? Of course, no production or operations manager ever likes that. In his mind, he must be thinking, ‘The average number is still the best. Certainly, I must not choose the highest number as the production capacity. I don’t feel comfortable.’

This is buffer mentality to its hilt. A simple excuse, ‘I am not comfortable’ had caused the production capacity to be grossly under-utilized. Huge amount of resources were lost due to one person’s feeling of not being comfortable.

Darul stopped me, “Eric, we need time to digest this piece of information.”

Knowing that I have pushed too much information to them, I said, “Okay. Let’s stop the discussion for today. Jeffry, you must make use of this new production planning technique everyday. One month later I would like to see the planned efficiency. If it is not consistently close to 100%, you are not doing a good job. Or perhaps, part shortages has been a major cause for the poorer than 100% planned efficiency.”

Three weeks later, Jeffry came back to me and said, “Eric, I cannot use the new production planning method taught by you. Samuel Siew told me to stop using it. He wants me to focus on clearing the backlog.”

I was totally baffled by Samuel’s action.

“What is in his mind?” I thought hard. But I could not understand. Neither could I push Jeffry to resume using my method. The whole project was shelved.

May 20, 2008 11:00 noon John Zeneski and I had just finished setting the strategy to reduce the cycle time of the final assembly process for line #18. I felt that there is a need to share with him why I included such a tedious, motion study exercise for him to work hands-on.

I explained to him, “It is very important to obtain an accurate standard time for the final assembly process. This is because it is the bottle-neck that determines the capacity of each of the production cells. The end result of reducing the cycle time for the assembly process will automatically increase the production capacity of the production cell.”

John replied, “Yes, I understand the importance of cycle time reduction. It means two things. One, it contributes to increased capacity. Two, shorter cycle time means less waste.”

I nodded my head and went on to explained, “Let me share with you a least known concept. I assumed you understand the basic principle of industrial engineering is to use time as the universal standard of measurement for all processes. This includes the production planning process.

For example, the raw number of units of products planned for an 8-hour shift is not apple-to-apple to the 8-hour of the operators’ time available per shift. I coached Jeffry, the production planner on how to apply a new production planning technique when he makes the production schedule.

First, he converted the capacity of the line from number of units per shift to hours per unit for each product/model type.

Second, he multiplied the number of units loaded into the production plan by the hour per unit to obtain the planned hours.

Third, he divides the total planned hours by the available hours and multiplies by 100% to obtain the planned efficiency.

Fourth, at the end of the production planning process, Jeffry ensures that the planned efficiency is 100% or very close to 100%.

I show you a table[2] which he used to carry out the new production planning process.”

John reviewed the table and asked me about the macro formula used. Nodding his head, he indicated that he understood the logic behind the production planning process.

I said, “John, there are very few manufacturing companies in this world that use this methodology of planned hour in production scheduling. I learnt this technique when NatSteel Ltd paid an American consulting company, Alexander Proudfoot (now merged with Phillip Crossby) S$1.5 millions to carry out a project for its steel mill operations.

May I suggest one thing? Can you implement this technique in just one of the sites in the United States? It is simple to apply and one of the immediate benefits is at least 50% increased in the productivity of the production folks.

It is one of the few projects that you can turn it into a showcase for the success of HOS or lean production system. The rest of all Honeywell sites must apply this technique too. It is all about ‘get result’ and get it quickly. It is going to be a great motivation for everyone in Honeywell if one simple project such as this one can deliver such astounding result.

Of course, I will give you support through emails or physically be there to conduct a one-day workshop. I am fully committed to make it into a success, Honeywell-wide.”

“Wait a minute, Eric,” John stopped me and asked, “You should compile a project report and share it with all the other sites, shouldn’t you? It is not that I can’t help you. There is a knowledge sharing platform within HOS”

I lamented, “I had taught Jeffry, the production planner this technique. We had seen more than 200% increased in productivity. For DV line #13 alone, my guesstimate was 400% or more. Samuel stopped Jeffry from using this technique and give a simple excuse; that is, to focus on clearing the backlogs.

I do not see any logic in his decision. Assume Jeffry can load up merely 100% more per day the backlog can be reduced at double the past rate. It is a win-win situation.”

John paused for 2 minutes and said, “Eric, perhaps, the magnitude of increase in productivity of this project paints a picture that Samuel’s past 4 years of managing this site looks very bad. It shows that he does not know how to run the operations.”

I was shocked to learn this.

I said, “How can he put his own private interest ahead of Honeywell’s interest? As I had said, there are very few companies in the world that know this production planning technique.

I identified this as one of the two projects with the biggest potential benefits. The other project is to implement the one-piece-flow system. Coupled these two projects together Honeywell Bintan is going to enjoy tremendous benefits. The increase in productivity would be 300%, the on-time delivery will be a few hundred percent, the inventory would be reduced by half.

Can Samuel single-handedly kill off the interests of Honeywell for a mere reason of defending his past record of ‘good’ performance? All because of saving his pride, the entire Honeywell organization suffers from poor productivity?

I was very sad and about to give up on my promise to Mike Haney. I promised Mike that I will turn the Bintan site into a showcase for HOS. Now it seems to me I cannot make it. I told Mike there is no point implementing HOS in record time but at the end of it, it did not produce results.

The only way to produce results is to implement a few critical projects that resolve problems that strangle the factory performance.

I was having dinner with Lim Siow Kiat in the BEI villa one evening. Samuel walked over to our table and told me not to carry out any more of these projects.

He said that right in front of Lim Siow Kiat, the HOS process leader for Asia-Pacific. I was stunned.

It is as good as telling Lim Siow Kiat off, he is not welcome to this site. This is because Siow Kiat’s primary role is to assist the Bintan site to get onto implement HOS and delivers results.”

John tried to calm me down and said, “I can give your suggestion a thought. Give me some time. Having you as the aggressive champion for the Bintan site is Honeywell’s fortune. If Samuel can put aside his personal interest and drives HOS, Dave Cote, Honeywell’s CEO would be most happy. He had both the site leader and HOS site leader, totally committed to make Bintan site into a showcase.”

“But what Samuel was afraid is that Dave Cote might register Samuel’s past 4 years as evidently a mediocre site leader,” I said.

John encouraged me, “No. Dave Cote can only praise Samuel for his commitment to HOS. He will give Samuel a big pad on his back. He will reward Samuel handsomely. He wants to use the Bintan site as a showcase to tell all the other Honeywell sites that HOS indeed had produced very significant results.

In senior management, it is all about motivating the employees to go forward.

Dave will never penalize Samuel for his past mediocre performance. If Dave does so, he is sending a terrible signal to the rest of the site leaders. No other site leader will ever want to implement HOS for a simple reason that he too, will be penalize for his past performance.”

“John, for whatever it is I am not going to deliver any result for this Bintan site because all my projects are inhibited. Everyone in this factory was told not to give me any support.

Until the day Samuel reverses his instructions, I am done with Honeywell. I will leave. At this moment, I’m merely doing my part to prepare the entire factory for its readiness to launch these two projects.”

John shook his head and said, “Be patient, Eric. Miracle will happen.”

Summing up, having found a solution to eliminate buffer mentality in the production planning process is a significant breakthrough. But mental block is another hurdle that is still insurmountable.

[1]Please read chapter, ‘Operation Equipment Efficiency’ in book entitled, “The untold secrets of lean sigma” by the same author.